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www.muldoon-accountants.co.uk Entrepreneur’s Relief Changes Part II
The 2018 Autumn Budget retained Entrepreneurs’ Relief (“ER”), which gives a reduced rate of Capital Gains Tax of 10% when certain conditions are met.
However, we did see two changes to ER relating to share rights and the required ownership period. To recap these changes were:
1. From 29 October 2018, shareholders must also be entitled to at least 5% of the distributable profits and 5% of the assets on a winding up of the company; and
2. From 6 April 2019, the qualifying period during which the relevant ER conditions must be met will increase from one to two years.
These were aimed at restricting the availability of ER on shares. The
intention behind these new requirements is to stop individuals benefiting from ER on cleverly designed share structures which do not give the shareholder a true economic stake in the business.
While most people would consider this a fair and reasonable goal, concerns were raised immediately by professional bodies and individual firms over how the proposed rules would actually apply in practice.
In a welcome pre-Christmas announcement, the government released amendments following consultation with various professional bodies which improve the position where a company has different of shares classes e.g. alphabet shares.
In response to concerns expressed by professional bodies, the government introduced an alternative test.
Instead of having to satisfy the requirements in respect of dividends or assets on winding up, as mentioned above, the shareholder can instead opt to show that, in the event of a sale of the whole of the ordinary share capital of the company, they would be entitled to at least 5% of the sale proceeds.
This alternative test should, once passed into law, apply from the 29 October 2018.
It is a welcome simplification to help shareholders wade their way out of the complex soup of new requirements.
If there is anything in this article that affects you, or somebody you know, please speak to Steven McVitty for independent professional advice.
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